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Less is more. This seemingly contradictory statement may be the new strategy of Wall Street, as some companies are learning to grow by slimming down. The keen investor stands to profit by keeping their ear to the street.

Many companies are seeing their futures in the form of separate entities, and are deciding to spin off one division or another in order to grow. There are a few reasons a company would choose to do this, but one of the most common is that under independent flags different companies may be able to better focus on their respective goals and market conditions.

Abbott Labs' (NYS: ABT) decision to split into two publicly traded companies is the most recent domino in this trend. Abbott announced that by the end of 2012 they would split into a medical device company and a pharmaceutical company with $22 billion and $18 billion in annual sales respectively. Though both divisions are involved in the medical field, they have different risk levels and geographic focuses. The medical device division is seen as the lower risk of the two, and is more internationally focused, whereas the pharmaceutical division is higher risk and more U.S.-focused. Is this really enough reason to split? Shareholders seem to think so, as shares initially jumped 5.9% on the news.

Past successTo understand if this strategy has long-term merit, let's take a look into the past.

In 2008, Altria (NYS: MO) spun off Philip Morris International (NYS: PM) into its own company. The decision was made so that Philip Morris could better focus on international growth, and would be insulated from the specter of U.S. litigation. This first reason mimics Abbott labs' own logic for the device-pharmaceuticals split.

The results are hard to deny. Since the spinoff, both parent and newly independent companies have rocked the Dow Jones Industrial Average (Index: ^DJI) and other comparable indices. From the March 2008 split, Altria and Philip Morris have returned 52% and 61% respectively, smoking the Dow Jones' 6% return over the same period.

Returns are adjusted for dividends and splits. Figures from Yahoo! Finance.

Another of Altria's spinoffs, Kraft, has seen market-beating returns since being fully sold off. During the almost six years when Kraft was publicly traded but still 88% owned by Altria, the stock underperformed the Dow Jones Index by 1.3%, virtually matching the average annualized return. Since the 2007 spinoff, Kraft's return has been more than triple that of the Dow Jones Index, doing so in only four-and-a-half years.

Apparently Kraft picked up a few moves from its former parent, as the company has recently announced its intention to split into two companies, one focusing on North American groceries, and the other focusing internationally on snack sales.

Everybody's doing itSpinoff fever extends beyond these few instances; Hewlett-Packard (NYS: HPQ) , the world's largest PC maker by market share, recently voiced interest in spinning off its personal computer division. Just today, Meg Whitman backtracked on the decision, but the consideration of the spinoff in the first place still gives credence to the idea.

Other notable spinoff developments include Pfizer (NYS: PFE) , who has expressed intentions of spinning off its animal health and nutritional division. The deal is valued between $12-$15 billion. The move is believed to be an important step in allowing Pfizer to focus on their core operations of drug development.

Many companies are recognizing that bigger isn't better, and can in fact be cumbersome. Sometimes the best way to combat this is to go in separate directions. There is perhaps no better example than AOL and Time Warner's ill-fated marriage. The media and service provider merger, valued at $162 billion, is the biggest to date in American history. Yet, instead of becoming the powerhouse they planned, the pairing floundered. The move has come to be known as "one of the biggest failures in merger history" as it ended with Time Warner spinning off AOL in December 2009 at a huge loss. Though neither company has outpaced the Dow Jones Index since the division, Time Warner has tracked it decidedly more closely than when it had AOL under its wing and averaged a negative 12.1% annualized return.

It's not you, it's meOf course splitting up a company is not a one-size-fits-all solution. The recent attempt, and subsequent bungling of the Qwikster Netflix (NAS: NFLX) split failed miserably; though the failure of the spinoff is recognized more as a mismanagement of public relations than a poor business choice. In fact, many people believe the move would have been in the best long-term economic interest of Netflix.

How to play itInvestors need to take note of the changing of the guard on Wall Street and invest accordingly. These spinoffs and sales spell huge opportunity for us to pick up newly lean and focused companies. Personally I'm looking to spun off entities with an international focus, like Abbott Labs' soon-to-be-independent medical device segment. Seen as more stable than the pharmaceutical division, and with arguably more growth opportunities abroad, what's not to like?

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At the time this
article was published Foolish contributor Austin Smith owns Shares of Pfizer. The Motley Fool owns shares of Altria Group, Abbott Laboratories, and Philip Morris International.Motley Fool newsletter serviceshave recommended buying shares of Pfizer, Abbott Laboratories, Netflix, and Philip Morris International. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.